The impact of the 2012 drought on U.S. crops and livestock has been in the headlines for weeks now. Today the United Nations Food and Agriculture Organization (FAO) released its monthly food price index, showing a sharp increase of 6 percent in July, which raises serious concerns that we might be on the brink of a global food crisis.

In an era of globalized commodity markets, the devastation of the U.S. corn crop translates into a global grain shortage. But, equally important, the U.S. drought is just one of many extreme weather events around the world this year and their combined “domino” effect could put many at risk of higher food prices, if not a full-on food crisis.

A global grain shortage

FAO food price index, 2008-2012. Credit: United Nations FAO

We are just at the front end of feeling the impacts of the drought. The harvest season has yet to unfold across much of the U.S., the final tally of lost crops is not yet in, and drought conditions persist in much of the country. The most recent USDA weekly crop progress report is not promising: 50 percent of the corn crop and 39 percent of soybean is in poor or very poor shape. The sorghum crop has also been hit hard with 45 percent in poor or very poor shape.

The U.S. is one of the largest producers and exporters of corn (also called maize), contributing 38 percent to world output and responsible for nearly half of global corn exports. Simultaneous with corn losses, global wheat output has been affected by drought and dry, hot conditions in Australia and Russia, both major wheat producers and exporters. The price of wheat (and some other grains) has also gone up because people are looking for ways to substitute away from corn.

The effects on corn, soybean, and wheat prices has been clear. According to the latest data from the Chicago Board of Trade, corn has risen 61 percent since June to $8.2675 per bushel, soybeans rose 20 percent to $16.2675 a bushel, and wheat prices rose to $9.2725 a bushel which is a more than 40 percent increase this year.

Livestock and dairy production lowered

Higher corn prices are also negatively affecting the livestock industry since corn is major source of feed. The price of hay has also doubled in some areas. Additionally, the drought has left 59 percent of pasture and rangeland land in poor or very poor condition. Many cattle farmers are culling their herds. This short-term response may lead to a temporary glut in the meat market but that will taper off within months. Over the longer term, into next year, we can expect rising meat and poultry prices, reflecting the increased cost of feed and smaller herds.

The extreme heat that has baked much of the country this summer has also led to lower milk production and lower weight gain among animals. According to a recent news article quoting Jim Fraley of the Illinois Milk Producers Association, in Illinois cows normally give 90 pounds of milk per cow per day but now production is down to around 60 pounds.

What does this mean for U.S. consumers?

We will likely see impacts within two months for beef, pork, poultry and dairy (especially fluid milk). The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.

The Federal Reserve Bank of Kansas City says the drought could contribute to a 4 percent rise in annual retail food prices over the next year, similar to increases seen during the 1988 drought.

South American corn and soybean crop production in 2011-12 was reduced because of drought. Current hot, dry conditions in southern Europe are affecting corn yields. Drought-like conditions in southern Russia and Ukraine are affecting wheat output there. The delayed Monsoon in parts of India and Pakistan has that region bracing for drought and could have a severe impact on cereal crop yields there.

Many of the extreme weather events happening this year – such as heat waves, drought, and erratic monsoons – are more likely to happen in a warming world. Although there might be a low probability that all these events would happen in a single year across the world, 2012 shows us that it is by no means impossible. And when it happens the impacts are likely to be very significant.

People in developing countries spend a much higher proportion of their income on food than we do here in the United States and that means that any increases in global food prices will be far more devastating for the poorest. Data from the Gates Foundation show that while U.S. households spend about 6 percent of their total expenditures on food, that figure is as much as 35 percent in India and 45 percent in Kenya.

As we confront the reality of a seriously altered climate, it’s worth thinking about the economic and human costs of these types of extreme events playing out simultaneously across the world. There are limits to our ability to adapt and extreme weather imposes a very unequal burden on the poorest people in the world.

About the author:
Rachel Cleetus is an expert on the design and economic evaluation of climate and energy policies, as well as the costs of climate change. She holds a Ph.D. in economics.
See Rachel's full bio.

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